Goldman Cuts Q1 GDP Forecast To 1.8% On Trade Deficit Surge

Moments ago we tweeted that today's surge in the trade deficit will force banks to start cutting GDP forecasts. Sure enough, Goldman as usual, is the first to set the tone, by cutting its ultra real time GDP forecast from 2.0% to 1.8%.

1. This morning’s data had a modest negative impact on our tracking estimate of Q1 GDP growth. On net, we revised down our estimate to +1.8% from +2.0% previously.

2. First, imports increased more than expected, and because this occurred early in the quarter it had an outsized impact on the quarterly average growth rate. On its own, the upward revision to our imports estimate would have taken our forecast for Q1 growth from 2.0% to 1.3%. However, the larger drag from imports was partially offset by a few other positives. First, exports increased more than expected in January, helping lift Q1 net trade. Second, the composition of the trade report showed fewer net exports of capital goods. This implies that more capital goods shipments were used for domestic purposes, and therefore boosts our estimate of business capital spending on equipment and software. Third, state and local government employment was above our forecast, and we therefore nudged up our estimate state and local government spending in Q1 GDP. The wholesale inventories report was broadly in line with our expectations

Most importantly you need to go back and look at the debate from the debt ceiling hike last November. Cutting 10 trillion dollars out of our deficit over 8 years got us a downgrade...remember? All the rhetoric that led to the downgrade was based on a projected 6% sustained GDP growth figure. Just another pipedream drummed up by the ponzi marching band. 1.8 percent growth doesn't even buy us more bananas for the republic, however it certainly does buy a ticket for another ride at the amusement park on the downgrade train or two tickets to the performance of Timmay the dog performing in the Dog And Crony Show...

“The bursting dot.com bubble…the ballooning trade deficit…and the slowing U.S. economy have cracked the foundation of the dollar’s global power. The Great Era of Dollar Domination is over. And now a giant derivative disaster threatens to crack the foundations of the American economy.” – John Pugsley, The Sovereign Society, 2005